Contemporary Labor Economics - cmsu2.ucmo.edu文档.ppt

Chapter 5: The Demand for Labor 1. Derived Demand for Labor Derived Demand The demand for labor is a derived demand. That is, it is derived from the demand for the product or service that the labor is helping produce. The demand for hamburgers leads to the demand for hamburger workers. Demand for workers depends on: How the productive the workers are. The price of the product the workers are helping produce 2. A Firm’s Short-Run Production Function Production Function A production function shows the relationship between inputs and outputs. Assume that only two inputs are used to make a product-- labor (L) and capital (K). In the short run, at least one input is fixed. The total product for a firm in the short run is: TPSR=f(K,L), where K is fixed. Definitions Total product (TP) is the total product produced by each combination of labor and the fixed amount of capital. Marginal product (MP) is the change in total product associated with the addition of one more unit of labor. Average product (AP) is the total product divided by the number of units of labor. Law of Diminishing Returns Law of Diminishing Returns Law of  Diminishing Returns 3. Short-Run Demand for Labor: The Perfectly Competitive Seller Hiring Decision Profit-maximizing firms will hire additional workers as long as each worker adds more to revenue than she costs. Hiring Decision Short-run Demand for Perfectly Competitive Firm Short-run Labor Demand Value of Marginal Product The value of marginal product (VMP) is the extra output in dollar terms that society gains when an extra worker is employed. VMP=Price * MP For a perfectly competitive seller, MR=Price. As a result, VMP = MRP for such firms. Question for Thought: 4. Short-Run Demand for Labor: The Imperfectly Competitive Seller Short-run Demand for Imperfectly Competitive Firm Short-run Labor Demand 5. Long-Run Demand for Labor Long-Run Labor Demand In the long run, both labor and capital are variable. The total product for a